Motion to Dismiss Patent Misuse
It's been almost eight weeks since I reported any developments in the ChromaDex v. Elysium federal litigation. The docket hasn't been completely dormant, but nothing very interesting has been filed, until this week, when ChromaDex moved to dismiss Elysium's bogus Patent Misuse claim.
Before we get to that, though, just to catch up, here is one other filing of marginal interest:
This document is an agreement between the parties about who can see what when they are required to disclose secret information that they don't want competitors -- like each other -- to see. Specifically, some items can be designated "Attorney's Eyes Only," which means that neither party gets to see the other party's REALLY secret information, and it is up to their attorneys, who CAN see the information, to not disclose the opposing party's secrets to their own clients.
If you think that some attorneys know which side their bread is buttered on and cannot be trusted to keep from their own clients information that their client is drooling over, I share your concern, but this kind of arrangement is typical in trade secret cases, and attorneys who break the rules can be subject to significant sanctions.
You'll notice that the order is signed by Magistrate Judge McCormick, not District Judge Carney. That's because in federal court the federal district judge (Carney, in this case) handles the primary aspects of the case -- including dispositive motions and trial -- while the Magistrate Judge (McCormick, in this case) handles discovery (and some other routine kinds of matters). This protective order involves who can see what during discovery, so it goes to the Magistrate Judge. The parties wrote it themselves, and Magistrate Judge McCormick signed it.
But ChromaDex's new motion to dismiss goes to the merits of one of the claims, so this motion will be considered by Judge Carney:
I have indelicately referred to Elysium's Patent Misuse claim as "bogus" and in this prior blog post I expressed outrage that Elysium still purported to assert a Patent Misuse claim even after ChromaDex gave in on the issue. I said,
I thought ChromaDex made the right decision...when ChromaDex mooted Elysium's bogus patent misuse claim by disclaiming all the rights granted in the allegedly offensive license...
That was a gift horse for Elysium. They had no legal right to require ChromaDex to disclaim that deferred compensation that was due under the Royalty Agreement, but the inadequacy of the legal system made it cheaper to disclaim that money than to set things right.
So you can imagine my shock when I read these words in Elysium's answer to ChromaDex's Third Amended Complaint, paragraph 65:
"Elysium denies that ChromaDex has purged its patent misuse."
Jesus, you can see why people hate lawyers.
What on God's earth does Elysium think they can gain from their patent misuse claim besides not having to pay any of the fees owed pursuant to the alleged misuse?
That was me speaking as an innocent bystander. As a lawyer, I understand that it may be tactically wise to fight absolutely everything and hope that the resulting pain increases the pressure on the opposing party to concede a more favorable settlement just to end the pain. Or at least I recognize that Skadden seems to think so in this case.
I assume that a favorable settlement is Elysium's actual goal, since the parallel Inter Partes Review litigation before the PTAB (we'll talk about that next time) strongly suggests that Elysium wants to continue selling Nicotinamide Riboside of the type covered by the Brenner/Dartmouth patents that ChromaDex licensed, and Elysium lacks comparable affection for whatever alternative source they seem to have arranged (there are reports of a new version of Basis that includes NR but not from ChromaDex, although I have not seen it).
If Elysium did not enjoy litigation, then there would have been a festive party in Cambridge when ChromaDex announced it would no longer pursue breach of contract damages under the royalty agreement, and subsequently wrote off $746,000 in royalty receivables, and Elysium would have voluntarily abandoned its claim for patent misuse, having won everything available in that round of the game.
But Elysium wants to spend money on litigation -- or they want ChromaDex to spend money on litigation, or they can't control themselves, I don't know.
But if they won't abandon the claim themselves, then Judge Carney can make them abandon it, and that's what this motion is about.
The core of ChromaDex's legal argument is that there is nothing left to fight over once ChromaDex abandoned is efforts to recover under the royalty agreement, and that matters because courts are not allowed to hear cases where there is no active controversy (the courts lack jurisdiction over the subject matter of such cases). From Cooley's brief:
"...Courts have long held that a covenant not to sue, such as the statements in ChromaDex’s [Third Amended Complaint], divest the Court of jurisdiction to adjudicate a counterclaimant’s action for declaratory judgment. See e.g., Dow Jones & Co. v. Ablaise Ltd., 606 F.3d 1338, 1346–48 (Fed. Cir. 2010) (collecting cases and reversing a district court’s denial of a motion to dismiss counterclaim for declaratory judgment of patent invalidity because patentee’s covenant not to sue “extinguished any current or future case or controversy between the parties, and divested the district court of subject matter jurisdiction”)..."
I would have bet that Elysium would give in when confronted with the most basic principles of civil procedure, but then there is this quote from ChromaDex's brief:
"Elysium suggested during the meet and confer process preceding this motion that it will claim that it has unresolved damages arising from ChromaDex’s alleged patent misuse that are sufficient to establish the Court’s subject matter jurisdiction..."
If I understand that correctly, it says that ChromaDex's attempt to recover royalties resulted in damages other than the recovery of royalties, whatever that might be. Cooley is as puzzled as I am, responding:
"A hypothetical claim for damages arising from the alleged misuse does not, and cannot, create a case or controversy that supports a declaratory judgment."
That seems right to me, but if Elysium is addicted to litigation and would rather fight than switch, then who knows what they will argue. And the Central District of California has taught me not to predict the outcome of this litigation based on what I learned at law school or by reading mandatory authority in the Ninth Circuit, so we'll just wait and see what happens next.
My worry is that we'll have dueling response & reply briefs on whether it is legally possible to moot a claim that was made up out of whole cloth in the first place. And after that we can ask how many angels might stand on the head of a pin.
I was mistaught in law school that the purpose of the legal system was to resolve disputes; the system of jurisprudence we have developed seems more prone to foment them.
If Elysium files a response to this motion to dismiss, I will give you a heads up.